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Most companies these days offer 401k retirement plans to help you save money tax-free for your retirement. If you are offered a 401k plan through your employer and you are not taking advantage of it, DO IT NOW. Now is a great time to start investing because the market is down right now. It's like your favorite department store is having a sale and you need to make your purchases before the prices start to go up.
What are the benefits of a 401k?
Tax Deferred Growth. The dollars you put into a 401k account are deducted from your pre-tax salary. You only pay taxes on the money when you start withdrawing money from the account (retirement).
Lower Taxes. The amounts you contribute to a 401k are deducted from your pre-tax salary. You are able to deduct this amount from your taxable income (up to the applicable limit).
Free Money. Most companies will match your 401k contributions up to a certain amount. For example, my companies offers a 3% match on the first 5%. Even when I was in debt, I made sure to contribute at least 5% into my 401k to make sure I took advantage of the free match from my employer.
Portable Money. If you leave your job, you have the choice of taking your money with you or your employer may allow you to leave your money in your former company's plan.
Don't wait until next week or next month to start investing in your 401k. Do it NOW! This is money that you will need to replace income from a job once you are retired.When you retire, don't you want to be hanging out on the golf course or travelling to your favorite places instead working?
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I've changed my contribution % to be the max (6%, down from 15%) of the company match. I then take an additional $200/month (not nearly the 9% difference, but it will be increased soon enough) to a Roth IRA. I figure as long as I'm under the max earning limit, I'd rather have my money in a post-tax account so I don't pay tax on it later. The future value of that money is worth much more to me as tax-free withdrawal when I retire than taxed now.
Always a well needed article, but I was hoping it was going to be along the lines of "Buy Low" now that the stock market is down. Maybe that's an idea for a follow-up article.
Hell yeah dude, that's seriously one of the BEST things anyone can do! It's on my list of TOP 4 things ;) The others include tracking your spending, create an emergency fund, and pay off all bad debt.
I'll tell you one thing, you get all that squared away you'll be living nice my friend. 401k's are hot. Like, Paris Hilton HOT! haha.. okay, i'll stop now.
Your article doesn't seem balanced: you haven't mentioned any of the 401k's drawbacks. True, you can borrow against it, but then you'd have to pay back your own money with (I think) 10% interest. The worst thing about it, in my opinion, is the fact that you can't start withdrawing your money until you're 59.5 years old. That pretty much eliminates the idea of the early retirement and gives you the "hardworking drone" mentality: keep going to work, year after year, decade after decade, and then, when you're 60, you'll finally be able to get your money back...
That said, I don't see 401k as pure evil - only as necessary evil. ;) I have my own business, but if I were a 9-to-5 drone and had an employer contribution match, I'd take advantage of it simply because it's free money. Free money you can't touch for several decades, but free money nonetheless...